An earnout may depend on a job you have not defined
Clarify authority, time, compensation, and termination before tying price to your continued role.
An earnout often assumes the seller will remain involved after closing. That assumption needs more than a title.
Define the expected role in operational terms. Will you manage the business, lead a specific function, support customer transitions, or act only as an adviser? How many hours are expected, where will the work occur, and who has authority over hiring, pricing, budgets, and strategy?
Compensation for employment or consulting should be documented separately from purchase consideration. Salary, bonus, benefits, expense reimbursement, and severance generally compensate ongoing services; an earnout may be intended as contingent purchase consideration, but payments tied to continued service can be characterized as compensation, so tax and legal advisers should review the structure. Blurring the two can create disputes over whether a payment was forfeited because the relationship ended.
Termination provisions are especially important. If the buyer terminates the seller without cause, materially reduces authority, relocates the role, or changes compensation, what happens to the earnout? The documents may need defined protections for good reason, death, disability, or a buyer-directed change that makes the original target impracticable.
Also examine restrictive covenants and any fiduciary or contractual duties arising from the post-closing role. Depending on the role and applicable law, a seller who remains an executive may owe duties to the employing or acquired company while holding a personal economic interest in the earnout. Clear decision rights and escalation procedures can reduce that conflict.
Do not agree to an earnout that assumes your effort while leaving your role to be decided later.